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Efficient Tax Planning Practices For Churches

Churches face unique tax situations all the time. For example, like other charitable organizations, your church falls under section 501(c)(3), which makes it eligible to receive tax-deductible contributions. However, it is still obligated to file the necessary tax forms and report to the IRS. Not preparing for all of these can lead to penalties that can hurt both your organization’s finances and image. Hence, you must have a thorough non-profit tax planning strategy to safeguard them against errors and other problems.

Your church also needs to have detailed non-profit bookkeeping records to help you keep track of your donations and expenses, and provide you with the necessary data to create a budget and financial plans for your church. The data you can gather from these can help you effectively manage the funds you use for community service outreach programs and other charitable activities.

Tax Planning Begins With A Solid Foundation

Before creating a tax planning strategy for your church, you’ll need to make sure you are following the best practices when recording transactions in your non-profit bookkeeping records. Not knowing how to record these types of transactions correctly in your books or complete IRS Form 941, can result in a disaster. Our experienced team of non-profit accountants can help you with this activity. We can also help you determine if you’re required to withhold or pay FICA taxes for any employees your church has.

Withholding Income Tax For Ministers

If you have a duly ordained minister performing services for your church, you may not be required to withhold income taxes from their salary. This is a unique tax rule that should be looked at and examined carefully when you are operating a church. However, if your minister decides to enter into a voluntary withholding agreement, they can obtain and submit to the Internal Revenue Service a filled up Form W-4.

The tax rules and regulations can get complicated when your minister is an independent contractor or an employee. For example, the housing allowance exclusion and other laws can make completing your bookkeeping tasks correctly and planning for your tax liabilities more complex. It helps to receive the assistance of a non-profit CPA when you’re working on this area of your church’s tax obligations.

Knowing When & What Forms To File

When you’re operating a religious organization, you may be required to report certain types of information and payments to the IRS. This may include W-2 Forms for reporting employee wages or Form 990. Being in charge of a church, you must learn the different thresholds that determine which tax forms you need to file. It is understandable, however, for a non-CPA to have trouble with this. Hiring an expert non-profit accountant can help ensure that your church is following the proper record-keeping rules, and filing the correct tax returns.

Planning For The Future

Operating a church is similar to running a business. You need to keep a watchful eye on your income and expenses if you want to continue operating. Helping your church grow will allow you to help those in need. Budgeting is one way you can improve the management of your church funds. Non-profit tax planning and strategies can also provide you with an idea of how much support you can give after considering all your tax obligations.

Our non-profit financial advisers can help evaluate your church’s financials. With our non-profit CFO advisory services, we can also help you answer questions, identify problems, and leverage opportunities. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!


This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.